General Pros & Cons

Invoice Factoring

Pros:

• Quick access to cash (often within days).
• Doesn't create debt on the balance sheet.
• Approval is often based more on your customers' creditworthiness than your own.
• Funding can scale directly with your sales volume.
• Can be an option for businesses that don't qualify for traditional loans.

Cons:

• Typically more expensive than traditional bank loans (higher effective APR).
• You receive only a percentage of the invoice value upfront (the advance).
• Some factors may want to manage your collections, which can impact customer relationships.
• Fees can be complex and vary widely between providers.
• Not all invoices or industries are eligible.
• Recourse factoring means you are still liable if your customer doesn't pay.

Bank Loan (Term Loan)

Pros:

• Often lower interest rates compared to factoring, especially for established businesses with good credit.
• Predictable, fixed (or variable) repayment schedule.
• Helps build business credit history when payments are made on time.
• You maintain full control over your customer relationships and invoicing.
• Interest paid may be tax-deductible (consult a tax advisor).

Cons:

• Can be difficult to qualify for, especially for new businesses, startups, or those with poor credit.
• The application and approval process can be lengthy (weeks or even months).
• Often requires collateral, a significant down payment, or personal guarantees.
• Creates debt on your balance sheet, affecting your debt ratios.
• Less flexible than factoring; loan amount is fixed.
• May involve covenants or restrictions on business operations.